The federal government has warned that Nigeria faces medium-term ﬁscal challenges, especially with respect to its revenues, which could snowball into a debt sustainability crisis if not immediately addressed.
It also said that with the negative growth in the country's second-quarter GDP, the economy could slide into a second recession in four years, with signiﬁcant adverse consequences, unless the third-quarter economic performance showed better results.
It projected that Nigeria's nominal Gross Domestic Product (GDP) will rise to N138.415 billion by 2023 and will also increase from N130.836 billion in 2020 to N 132.1254 billion in 2021.
The Minister of State for Budget and National Planning, Mr. Clement Agba, reeled out the data yesterday while presenting the draft 2021-2023 MTEF/FSP to the House of Representatives Joint Committees on Finance, Appropriation, Budget and Economic Development as well as Loans and Debt Management.
According to him, the consumption expenditure, which is projected to remain ﬂat at N118.735 billion in 2020, will increase to N 118.468 billion in 2021. It will also grow to N124.358 billion by 2023, reﬂecting a gradual steadiness in the recovery.
Agba, who represented the Minister for Finance, Budget and National Planning, Mrs. Zainab Ahmed, projected that inflation will remain above single digit over the medium term, given the structural issues impacting on the cost of doing business, including the high cost of food production.
He said the 2021-2023 MTEF/FSP was based on the assumptions that the oil price benchmark would be $40 per barrel with daily production standing at 1.86 million barrels and N360 to the dollar exchange rate.
The minister stated that the economy faced serious challenges in the first half of 2020 with the microeconomic environment signiﬁcantly disrupted by the COVID-19 pandemic.
He added that Nigeria is currently exposed to spikes in risk in the global capital markets, which will put further pressure on the foreign exchange market as foreign portfolio investors exit the Nigerian market.
He said: "Crude oil prices declined sharply in the mild market with Bonny Light crude oil price dropping from a peak of $72 per barrel on January 7, 2020, to below $20 in April 2020 as a result of which the $57 crude oil price benchmark on which the 2020 budget was based became unsustainable.
"Massive output cut by OPEC and its allies to stabilise the world oil market was another key development in the international crude oil market with Nigeria contributing about 300,000 bpd of production cuts."
He said Nigeria's second-quarter GDP growth was negative, adding that unless the country achieves a strong third-quarter economic performance, its economy is likely to lapse into a second recession in four years, with signiﬁcant adverse consequences.
He stated that the disruptions in global trade and logistics would negatively affect Customs duty collections in 2020, while the COVID-19 containment measures have inhibited domestic economic activities, with a consequential negative impact on taxation and other government revenues.
He said to manage the fiscal crisis in the country, improving the tax administration framework to optimise government revenue had been a major thrust of the present administration's Strategic Revenue Growth Initiative (SRGI).
Agba said: "To enhance independent revenue generation and collection, the government will aim to optimise the potentials, operational and collection efficiency of Government Owned Enterprises (GOEs) with a view to generating significantly higher revenues required to fund the FGN budget. Current revenue performance of GOEs will be addressed through the effective implementation of the enhanced Performance Management Framework.
"The cost-to-revenue ratio of GOEs has, by a presidential directive, been limited to a maximum of 60 per cent to 70 per cent, while regular monitoring and reporting of revenue and expenditure performance of GOEs will be undertaken by both the Budget Office of the Federation and the Office of the Accountant General of the Federation.
"The Finance Bill 2020, which will accompany the 2021 Budget proposal, will contain measures to advance the SRGI. We shall also work closely with the National Assembly to amend relevant laws that need to be amended to help with the SRGI."
Earlier, Chairman of the House Committee on Finance, Hon. James Faleke, said under no circumstances would an agency of government fully or partially funded by the Appropriations Act would be allowed to spend the revenue it generates.
He said the National Assembly would henceforth expect the Accountant General of the Federation to deduct from the accounts of any defaulting ministry, department and agency such revenues.
According to Faleke, "Going forward and in line with its constitutional powers, the National Assembly will continue to engage GOEs, MDAs and revenue-generating agencies (RGAs) to generate more funds to fund the national budget.
"Particularly, the Federal Inland Revenue Service (FIRS) must devise all strategies and technology to focus more on non-oil revenue. It is our understanding that the country is blessed with huge revenue sources apart from oil.
"The FIRS has the responsibility to ensure these revenues are tapped and remitted to the government coffers. The Office of the Accountant General of the Federation (OAGF) is hereby charged to exhibit some levels of improvement on fiscal reporting, especially special accounts.
"Nigeria National Petroleum Corporation (NNPC) must be seen to meet the production targets and manage approved cost/deductions as per the MTEF/FSP provisions. Department of Petroleum Resources (DPR) on the other hand, needs to be more responsible in the reports of oil production and exports. National Petroleum Investment Management Service (NAPIMS) must imbibe the culture of being more transparent in oil and gas costing and management."